Money laundering

Code of Ethics and Conduct defines money laundering as:

...the process by which criminals attempt to conceal the true origin and ownership of the
proceeds of their criminal activity, allowing them to maintain control over the proceeds and,
ultimately, providing a legitimate cover for their sources of income.
Auditors need to be particularly careful where money laundering issues are concerned
especially for a business that is predominantly cash-based because the scope for money
laundering in such businesses is wide. There are usually three stages in money laundering:
Placement which is the introduction or placement of illegal funds into a financial system.
Layering which is where the money is passed through a large number of transactions. This
is done so that it makes it difficult to trace the money to its original source.
Integration which is where the dirty money becomes clean as it passes back into a
legitimate economy.

The steps can also be known by the terms, hide, move and invest.
Money laundering offences can include:
Concealing criminal property
Acquiring, using or possessing criminal property
Becoming involved in arrangement which is known, or suspected, of facilitating the
acquisition of criminal property.

There are many countries in which money laundering is a criminal offence and, where an
accountant or an auditor discovers a situation which may give rise to money laundering, the
accountant or auditor must report such suspicions to a money laundering reporting officer
(MLRO) whose responsibility it is to report such suspicions to an enforcement agency (in the
UK, this enforcement agency is the National Crime Agency (NCA)).
It is an offence to fail to report suspicions of money laundering to NCA or the MLRO as soon as
practicable, and it is also an offence if the MLRO fails to pass on a report to the NCA. Where the
entity is actively involved in money laundering, the signs are likely to be similar to those where
there is a risk of fraud, and can include:
Complex corporate structure where complexity does not seem to be warranted
Transactions not in the ordinary course of business
Many large cash transactions when not expected
Transactions where there is a lack of information or explanations, or where explanations are
unsatisfactory, or
Transactions with little commercial logic taking place in the normal course of business.
Maloney and Co
You are a manager in the audit firm of Maloney and Co. One of the firms partners
has read in the press about the increasing responsibilities placed on professional
firms for the detection and reporting of money laundering activities.
He has asked you to prepare a paper for the partners covering the meaning of
money laundering, the firms obligations in respect of money laundering, and the
steps that the firm should take in order to meet those obligations.

Required
Set out the points to be included in your paper for the partners.